Moody's ‘does not see sovereign debt downgrades’

London, September 9, 2009

The credit-rating agency Moody's does not expect to downgrade the sovereign debt of leading triple A-rated nations despite the explosive growth of government debt, the Financial Times reported on Wednesday.

"We do not expect downgrades in the near future of those countries rated triple A – the US, UK, Germany, France and Spain -- especially after the downgrade of Ireland, the most vulnerable triple A," Pierre Cailleteau, the head of sovereign risk at Moody's, was quoted as saying in the FT.

Referring to Britain, Cailleteau said that although public finances had clearly deteriorated, the rise in debt appeared affordable as major political parties have shown a willingness to curb public spending.

He noted the ability of triple A-rated sovereign states to raise funds relatively cheaply in bond markets and their power to control budgets through growth, spending cuts and tax rises, the FT reported.

Loss of triple A status would raise the cost of financing public debt, affecting government bond yields and, in turn raising interest payments on sovereign debt.

Britain's budget deficit is forecast to reach GBP175 billion ($287.1 billion) in 2009, with national debt rising to GBP1.4 trillion over the next five years.

Both Chancellor Alastair Darling and opposition Conservative Party leader David Cameron have spoken out on the need to curb spending as Britain faces an increasing budget deficit due to costly economic stimulus packages. – Reuters